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[hermes]

Hi All

does anyone think they can work out the scenario involved with a US Treasury bubble burst? By that I mean that no-one apart from China and Japan is really buying treasury bills, and as I understand it, that's the primary way the hungry deficits are being fed. So, the more the treasury prints, the greater the money supply, the weaker the dollar - right? But, being the forex market ... in anticipation of the risks and just cos those deficits exist, the dollar is weakened through lousy sentiment, right? So, now that China has $120 billion and Japan has $144 billion in treasury bills and similar amounts in trade surplus - certainly Chgina has - at $120 billion, China also has $300 billion in foreign reserves - at some point they've gotto say enough is enough, surely? When the day comes that a treasury bill auction has no-one buying, it is surely going to panic markets. right?

We then have a forex response, granted, but given that we will probably be very close to the EURO pain threshold, there will have to be intervention by the ECB, surely? Does anyone think, given the panic scenario of US bond market crash, that the ECB will be able to stop the $ freefall? Will it be a freefall, or something similar to JPY recently? Will it become a descending spiral?

If that were the scenario, who would be the biggest gainers (swissy)? To add some perplexity, are the biggest gainers not getting close to the pain threshhold already, with the anticipation that is currently going on - if the pain threshold was defended madly and defeated, that resistance level would become a great support, keeping those countries "in the pain area".

Given this unlikely chain of events, what is the likely outcome - acceleration of growth, war (as the US defaults on repayments), depression, equity explosion, equities plummeting?

Any ideas? A yes or no answer is fine ... just kidding - sorry about all the questions, should be just one - worst case scenario (very possible one), what's gonna happen?

[mishak]

Hi hermes You make a good point

I would call it "USD bubble". We are looking at it for more than 30 years since the second gold devaluation. People who sold USD for anything major then will earn average 5% annually. For example JPY rate was 330, now it is 110 - comes to 6.6% without compounding.

Every major and near-major currency will win. CBs will buy USD and print their own currencies. Resource countries will win, including China - workforce is very valuable resource.

It will not be a burst. Just slow global lose of faith in the greenback.
I would call it "the global downtrend in USD".

Take care and have fun

[Thrakos]

I just hope u went Long EUR/USD at Eur opening cause i did

[eternalfuture]

When a bubble got to burst, a bubble got to burst...

What's wrong with U.S. economy anyway?

Productivity? Nope.
Consumption? Absolutely not.
Inflation? As timid as a pet.
USD? The Administration and manufacturers love it to be at the low value.
Outsourcing? Just a POLITICAL issue being exaggerated.
Employment? Perhaps it grows too slow, but it grows. It's just people who got impatient.
Deficit? Yeah, that's the culprit.
Housing sector? Greenspan and the people at the Fed plus the Treasury Secretary Snow warned about GSEs, there's got to be a reason behind that, right?

So, deficit and housing sector are my concerns for U.S. economy.
Regarding productivity, the technological advances in manufacturing have taken a toll in employment. Why would hire more people if factories can produce the same amount of output with less labor?

Regarding deficits, some action should be considered to solve this problem. Weak dollar make US goods sell more abroad? Well, trade gap widened the last time it was reported. January, that is. And in January, EUR/USD touched 1.2898, wasn't that a low value? I wonder how the numbers would be in the next February report... In Feb, USD touched the peak at 1.2927. If it still widening, I don't know what to say about it.

Some predicted that there's a potential crash in DJIA. Looking at the chart, well, it may have begun. I'm not pretty sure, just a hunch. When assets devalue, interest rates still low, employment growth is lacking or slow, while debts are piling up, that sounds like trouble, right?

By the way, just a thought. Don't take it too seriously.

Cheers!